Peso rate breaches 153:$1; authorities remain unfazed

The peso depreciated more to R53:$1 yesterday after the independence day holiday – a fresh 12-year low – however, the central bank still thinks this is just an expected volatility due to dollar gains ahead of the Federal Open Market Committee (FOMC) meeting, which is widely expected to raise US interest rates again.

The peso hasn’t been near this level since mid-2006. At R53, the peso is at the peak of the government exchange rate assumption of R50-R53 for 2018. Economic managers revised the assumption after the peso-US dollar rate breached R52 last February and averaged in March, April and May.

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said up for review to decide next week’s policy rates’ direction is a hoard of “very rich” information that is too intricate to even give a hint of what’s coming.

“It’s a fairly complex environment that we need to navigate,” he commented yesterday.

With the market convinced of the BSP’s hawkish stance – which may translate to a second rates’ increase on June 20 (readjusted schedule from June 21) – Espenilla has noted the continued speculative activities in the exchange market which he said was “naturally volatile.”

In early trades Wednesday, the peso vis-à-vis the US dollar opened at R53 from its June 11 closing of R52.95. It was its weakest level since June 2006. The BSP chief still does not show alarm over the exchange rate trends.

“The Monetary Board will be evaluating a very rich and broad range of information at its policy meeting next week,” he said instead. “Recent developments on inflation and economic activity are key inputs but these are certainly not the only consideration.”

Espenilla added that in assessing the inflation path, they are pre-emptive in utilizing the tools it has in its arsenal to manage inflation expectations. “We’ll be examining closely all the potential drivers of future inflation through the various transmission channels as affected by global developments, expectations formation, and uncertainty,” he said.

On May 10, the Monetary Board raised key rates by 25 basis points in a highly anticipated move, not since the last hike in September 2014.

The BSP hoped the change in policy stance will lessen pressures of second round effects but also noted that while inflation is on the rise, its momentum has started to slow down. It will still breach the two percent to four percent target for 2018 mainly because of supply-side factors.

For 2018, the BSP increased its inflation estimate to 4.6 percent from a previous 3.9 percent, while for next year, they forecast 3.4 percent from an earlier projection of three percent. It is closely monitoring all possible price pressures that could threaten their forecasts, particularly for 2019.